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The house across the street from my house is up for sale. I’m reminded of that every time I leave my driveway and I am curious to see how long it will take to sell and at what price. I’m curious not because I’m going to sell my house any time soon, but just because, well, I’m curious. It’s a rare homeowner who doesn’t regularly wonder what their home is worth.

This time of year, homeowners receive their third quarter property tax bills which contain the “actual” assessed value of their homes. Homeowners are billed during the first six months of the municipal fiscal year (July 1st through December 31st) based on the previous fiscal year’s assessed value. So how accurate is that new value?

The “actual” assessed value received in January 2018 is based on the home’s value on January 1st 2017, using sales that have occurred during the year 2016. That assessed value will remain in the public domain for the next 12 months. Meaning that the assessed value of a home in Massachusetts in December of 2018, is based on sales occurring between 24 and 36 months in the past, almost guaranteeing that the “actual” assessed value is not the correct market value.

Submitting the assessed value of a home is a required field in the multiple listing service so there is no getting away from that number even if it varies significantly from the current list price. Individual assessed values enter the public domain as a public record published by every town as required by law.

Good luck getting a local assessor to change that value; it does happen, but rarely. Local assessors are required by state law to assess property at its “full and fair” value. If you have ever talked to an assessor about the process they use, you will come away believing that they have done just that. Of course, time-frame is everything. What assessors are actually trying to do is establish a value for your home relative to your neighbor’s home and every other home in town. Most towns revalue properties every year, though they are only required to do so every three years. Year three values must be reviewed and certified by the state.

There is a dilemma in the residential real estate business that agents often are confronted with: The highest value ever published is the correct value of a property. This is almost never accurate. In an active, appreciating market, this value may be low; more often third-party providers of estimates like Zillow, Realtor.com or Redfin using proprietary algorithms, compete to provide value estimates that regularly vary from each other by tens of thousands of dollars.

These third-party providers admit that their estimates are not capable of directly taking into consideration the aesthetics of a home or its precise location and the accuracy of their estimates are off by 4 or 5 percent at best, which is not insignificant.

The estimates given for my house varies by $119,000 from one of these sites to another. So, you know where this is going. Why rely on an algorithm or some form of artificial intelligence when you can have real time intellect and the practical experience of a Resident Expertsm?

You may have heard that Amazon has opened brick and mortar bookstores, eleven actually, all across the country. Is Jeff Bezos hedging his bet on the original Amazon staple? Or just offering a different experience. Paul Swydan thinks he knows and will be bringing his Silver Unicorn bookstore to the Village, here in West Acton.

While the digital age has changed how we shop for items like homes and books, some underlying principles have been rediscovered. About seven or eight years ago, Google began to notice a trend in how folks were searching for goods and services, more precisely, how they were qualifying their searches. Phrases like “near me,” “closest” and “nearby” began to appear more and more frequently, thirty -four times more often to be precise, over that time period.

Characteristic of Google, they began to alter their algorithms to respond to consumer demand for the hyper-local intent. Not to pass up an opportunity to sell favorable search positioning in response to this newly found phenomenon, companies found themselves organically or purposefully showcased in searches like this:

While the pay per click ads provide favorable positioning on a limited basis, having original hyper-local content that Google recognizes as such, serves as the best way to get selected among the three or four highlighted firms.

Marketing by local companies has changed as the internet has grown. Still, some companies do not display their physical address as if admitting to being in only one place was a handicap. National brands once touted their broad reach as a positive differentiator. It is pretty much recognized by everyone now that the internet has leveled the playing field for marketing goods and services, like real estate and books, and the appeal for local connection has become a greater good.

Forces operating in the digital age do not give up easily on any challenge, satisfying the demands of the hyper local consumer is no exception. Enter Virtual Reality and the quest to create the hyper local experience remotely. Is VR truly satisfying, or merely cool? For some of us, it is hard to imagine virtual reality ever replacing actual reality, including reading books.

If you own a home, you are by definition, invested in your community and when you go to sell that home, you need to know that whoever is working for you is able to convince buyers that the community is worth investing in. Having restaurants, a coffee shop, some retail and now a bookstore in the neighborhood trends positively.

In the retail world, while local independent stores may lack a pricing advantage, survey respondents generally consider neighborhood businesses to be more trustworthy and better able to deliver on a quality experience than the national brand, big boxes. The polling company, Neilson, found that 75% of respondents to a larger, international survey, prefer to do business with firms with a nearby brand origin. And if you look, you’ll find that it’s Independent businesses that contribute more to the economy from their support of non-profits as well as enlisting other local businesses for its day-to-day needs like print services and marketing for example.

The continued interest in Acton Real Estate as a community based independent company by hyper-local consumers is of obvious importance to us. But we also hope for similar success for all of the businesses in the West Acton Village which will soon have a book store on Spruce Street. We helped Paul Swydan negotiate his lease and wish the Silver Unicorn Bookstore much hyper-local success.

We have a dynamic economy in the US influenced by consumers, business interests and government actions. Housing is one of the largest sectors of the economy, comprising about 15% of our Gross Domestic Product. Sometimes changes happen at a slower pace that are easy to comprehend and manage, other times not so much. As we enter the spring market, Homeowners, Buyers and Sellers have big changes to consider.

The two significant areas of concern are accelerating home values (appreciation averaging around 6% annually) and the effects of the recently passed tax reform. Both come to bear regardless of where you might be in the housing market, even if you have no plans to change your circumstance at all.

As home values appreciate, you will feel more wealthy and tempted to spend (credit card balances are on the rise) or borrow against the new higher home value using a home equity loan (HELOC), That’s the up side for many of us. The down side comes from government actions to share in your new-found wealth by potentially increasing your local property tax bill, and taking away your ability to deduct interest paid on your HELOC on your federal taxes. And of course, your home is not the only one now worth more money; the home you may be hoping to up-size or down-size into, has also gone up in value.

Coping with rising home values is not completely new and we all know strategies to deal with that. What IS new and different is the new tax reform law. Here, the economic dynamics is very personal. In fact, it is so unusual, the IRS is requiring that everyone who receives a paycheck complete a new expanded W-9 with their employer. We will all be turning to tax accountants and lawyers to help us sort things out. Full disclosure, I am neither so take what I have to say as merely conversation starters.

On the upside, if you do not own a home, you do have a spouse and children and receive a pay check for your work, you will be getting more cash in the envelope. Of course because you do not own a home, you have nothing to appreciate and some of your tax cuts are effectively off-set.

If you have plans to move to a state with low housing costs and no income tax, the new tax law will be very good to you unlike your neighbor who stays in the big house, has no children, a HELOC and draws a big salary.

So, the big question for someone interested in buying a home, comes down to the ability to afford the monthly payments, taking into consideration debt servicing and tax benefits or lack thereof, along with the overall impact of the new tax law as it provides and diminishes various benefits. And then there is the market appreciation factor to consider and its ability to make a purchase worthwhile in the long run.

None of the above takes into consideration all of the other really good reasons for living where you live in a home you love. Hard to put a price on that. As always, you do not need to be alone as you navigate the emerging and confusing real estate landscape. Talk to a Resident Expertsm at Acton Real Estate, they are there to help you sort things out.

Around the holidays, the real estate business slows down. For a while we put aside the tips on staging your home, decluttering advice, valuable home improvement suggestions and the like and we get a little sentimental. Thoughts turn inward to hearth and home, being with family and friends and memories of Christmas past.

Personally, I still believe in the spirit of Santa Claus though my faith was challenged one Christmas time when I was six years old. My cousin Donny, who was eight and considered himself more “in the know” came for a visit before the holiday with big news he shared only with me. He told me there was no Santa Claus, and more to the point, it was actually our Uncle Walter all dressed up.

My mother was the second youngest of twelve children of Adam and Mary Ruszczyx. Except for Joe who died during the war, all of my aunts and uncles along with all my cousins gathered for a traditional Christmas Eve meal at my grandparent’s place. Back then we lived a few blocks away in a tenement building on South Bridge Street in Holyoke. The whole family lived in Holyoke as well. Extended families should be so lucky these days.

After the meal was over, tables cleared and dishes washed, the main event would occur. Santa would arrive with big bags filled with gifts for all the children. As you can imagine, the run up to Christmas Eve was a much-anticipated event. As children, we felt doubly blessed to have this extra visit from Saint Nick, so Donny’s news was very confusing and of great concern to me that year.

It was a secret I could not keep to myself. I told my mother what my cousin had said; she assured me that his information was not correct. This put my mind at ease though I remained a bit unsure wondering why Donny would have said what he said.

Finally, the big night arrived, the meal consumed and everything made ready for the special visitor. We gathered in the living room in a big circle nervously waiting. The phone rang. It was Santa himself announcing that he was only a block away. The air was electric!

As I fidgeted in my seat ready to jump out of my skin, I noticed who was sitting right beside me – Uncle Walter! Then Santa came through the door; his jolly old self carrying big bags filled with toys and shouting out Merry Christmas as he handed out gifts to each child gathered around the room. When he got to Donny, the room grew quiet as he presented the unfortunate lad with a big plastic mesh stocking filled with charcoal.

Later in life my mother confessed to me that because of Donny’s misguided, though admittedly accurate information, plans for that night changed and my Aunt Jenny padded up and became the jolly old elf.

As for Donny, I can attest that he was not scarred for life though lessons were learned that Christmas Eve.

It has been a very long time since Santa stopped making his visit with the grandchildren of Mary and Adam but the memories of Christmas past live on, fondly in my heart.

According to the Urban Dictionary, the expression “Do the math,” means to figure something out. To come to a solution or conclusion based on other facts. But my training, going back to my earliest experiences in the world of work literally means to do the math. Whenever I read an article with numbers in it, I do the math often discovering that something just doesn’t “add up” or that the verbiage doesn’t match the math. Or that the numbers have become group think detached from reality.

Tax Reform

The latest disconnect between the word on the street and the math has to do with tax reform. The group think within much of the housing community, including the National Association of REALTORS® has to do with changes to the mortgage interest deduction “eviscerating” the program and bringing home sales down and endangering the economy.

First of all, nothing yet has been turned into a bill let alone passed into law, so injecting panic into the marketplace is chilling and ill advised.

Secondly, even considering the most severe reduction from $1.0 million to $5 hundred thousand in mortgage debt, the reality is it will affect very few new homebuyers, mostly those buying big houses with big incomes. The average mortgage debt nationally is less than $225,000 and even in high cost markets, having a buyer’s tax liability rise by a few thousand dollars is not likely to be the go or no-go metric on a home purchase.

Down Payment Requirement

This still keeps coming up. Common knowledge among first time home buyers, reinforced by the printed word is that it takes 20% of the purchase price in cash to qualify for a mortgage. One of the Agents in the office asked a friend why she thought that way. Her response was that every time she went to her favorite real estate website and checked in with a mortgage calculator, the assumed number for down payment was 20%.

In actuality, according to the National Association of REALTORS®, about 60% of first-time homebuyers put down less than 6% on a home mortgage and in Massachusetts, there are programs that allow even less for qualified buyers.

Student Loan Debt

Seventy-five percent of all student loans are government loans and government loans provide for re-payment based on income which means that monthly payments are not necessarily tied to the amount of the loan but rather as low as 10% of the borrower’s income.

Lenders make loans in part based on debt to income ratios though it would be more accurate to say debt “service” to income ratios. From the lenders perspective, the amount of unsecured student loans a borrower has doesn’t matter but rather how much they pay each month on those loans.

Challenge everything; it’s a good practice and you will be surprised at how often the numbers don’t add up. It’s not a grand conspiracy; perhaps the media or word on the street picks up on a small or partial truth and runs with it because it seems to make sense and it very well may sometimes. Don’t be satisfied until you can relate the information to your personal circumstance. While the Resident Experts(sm) are not lenders or tax accountants, they know when you should be talking to one.

Does it seem like all the news is bad lately? No matter where you look, something bad or very sad is happening. Natural disasters keep coming one after another, the political environment is chaotic and violence around the world is setting records. We can’t get away from very bad behavior by some of the powerful in society and millennials still can’t find good jobs.

To some extent, we find what we are searching for. Psychologically, we are wired to look for bad news as a matter of self preservation. We need to know what’s out there that threatens us, but are we being overwhelmed by bad news and is it affecting our behavior, dampening individual optimism in areas where optimism is justified? A recent article in Psychology Today found that negative news stories outnumber positive ones by seventeen to one.

But…there IS good news; you just have to look for it. Every day good things happen to people, so much good news in fact that most major news outlets have channels that post only good news, lots of it. Even Fox News has the site, http://www.foxnews.com/category/good-news.html where they keep the good news. There’s even a Good News Network. It’s interesting that much of this good news is segregated away from the Breaking News of the day.

But consider this, as in politics, good news is often all about the economy, and the economy doesn’t look bad at all. Writer Brian Sullivan included this list of good economic news in an article he wrote for CNBC last week:

The latest CNBC economic survey shows optimism in the American economy at a 10-year high.

Manufacturing activity is at a 13-year high.

Service sector activity is at a 12-year high.

There are a record 6.2 million open jobs in America.

Semi truck sales are out-of-control strong.

Intermodal rail traffic hit a record in the week that ended Sept. 23.

Despite talk of retail’s impending doom, nearly 700,000 people got hired in the sector during the past year.

It would be a mistake to ignore the bad news, especially when there are things we can do to make things better for the future, but the sky is not falling and the Chicken Little in us has not overtaken our optimism.

As for our millennial children, we may be more worried about their future than they are. They are smart, well educated and living in one of the most open societies on earth. Despite our conflicts and uneven social progress, this country is still on the top of the list of best places to build a prosperous future.

The younger generation is moving at their own pace and in their own direction and that is very good news.

There are many considerations when trying to decide whether to buy or rent a home and there is no right answer that will suit everyone. This blog will deal only with the economics of the decision using a realistic set of assumptions and current market conditions. It’s a good place to start and allows for other life circumstances to inform the final decision. Just under 65% of Americans are homeowners and a majority of those who do not own homes would like to some day, according to the National Association of Home Builders. It’s still a big part of the American Dream.

In order to conduct the analysis, a standard model was used to compare both the short term and long term costs and benefits of both owning and renting. The specific numbers used to populate the model come from recent sales and rentals as published in the local multiple listing service (MLS PIN). A time period of five years was chosen as the length of occupany for both the renter and the buyer. The metrics used for both the sold and rented units were:

We found 23 sales and 25 rentals that met these criteria. The median sale price was $185,000 and the median rent was $1,550. The simple average was $177,661 and $1,541 respectively The median was used because there are as many sales below that number as above, so extremes do not effect the selected values.

For the rental units, we assumed rental insurance of $240 per year and annual rent increases of 4% which seems to be the market for two bedroom units.

For the sold units, we assumed 5% downpayment, a 30 year mortgage interest rate of 5.0 (FHA),closing costs of $6,000, property taxes of $2,123 annually, condominium fee of $393 per month, mortgage insurance at .5% of the mortage amount, and condominium unit owners insurance of $240 annually. Property taxes and condominium fees were also increased by 4% annually to be consistent with rent increases.

Based on these criteria, the total monthly cost to buy was $1,607 and the monthly cost to rent was $1,570. Over a five year period of ownership, the cash paid out for the buyer would be $97,879 vs. $101,944 for the renter. So, if you are paying more than $1550 per month and you can find a nice condominium for anything less than $185,000, buying is your best economic option.

There are two real sweetners for the buy option. Assuming a combined state and federal tax rate of 20%, a five year tax benefit of $10,752 would be realized by the homeowner. Additionally, the homeowner would have paid down the mortgage loan by $14,361 and can expect the property to have appreciated in value by $40,081 over that time period.

As they say in investing, past performance is not necessarily an indicator of future returns. The same holds true for real estate investing, including the purchase of a primary residence. But unlike stocks and bonds, it’s easier to ride out the slow or down years simply because you need to have someplace to live.

So, if you’re secure in your job, have managed to save for a down payment and have a good credit score,(680 or above) a closer look at some available real estate may make sense at this time. And as always, while formulas and rules of thumb are a good place to start, get a professional like a Resident Expertsm to work closely with you on this journey.

My daughter Emily recently returned from a trip to Europe with a gift for her dad. It sits in front of me now as I write. A small brown paper bag with little holes punched on two sides so that the tulip bulbs inside can breathe, I assume they need to breathe. If this present of tulip bulbs and its long ago circumstances were described in a novel, its significance would eventually be revealed. Students of economic history may already have an idea of its place in this story.

Housing and real estate news have regularly of late, contained articles speculating on the growing signs of another housing bubble, especially in some red-hot markets. Not far from Acton, many communities closer to Boston and in Boston itself are seeing behaviors characteristic of a bubble in the making. Multiple and over-asking offers on homes are occurring with predictability, causing asking prices to rise ever higher.

The term” Bubble” dates back centuries and economic bubbles were occurring even before we had such a name for them. The term bubble derives from the prices paid for stocks that were inflated and expanded by nothing but air and are vulnerable to burst suddenly. Investors were most prone to be the victims of bursting bubbles though recent history has shown that ordinary home owners can get caught as well.

Bubbles form when the price of an asset, like a home, deviates substantially from its intrinsic value. Unfortunately, the intrinsic value is more often not revealed until after the bubble has burst. Most economists believe that bursting bubbles are a recurring feature of our modern economy. Models used to predict periods of irrational pricing rely on analyzing the expected stream of income or dividends, which is no help to buyers of single family homes.

The maddening aspect of bubble formation is that they present profit opportunities for investors who are in early and most importantly, out before the bubble bursts. These Ponzi scheme participants manage to find a chair before the music stops.

The key element for home buyers who are in the market during times of hyper price escalation is to expect a bubble. However, if the target property is in the right location, fits the buyers needs and desires and most importantly, occupancy is expected for an extended period of time, it’s right to make the buy. Home equity lost during the Great Recession of 2008-2009 has returned to most markets across the country. And here at Acton Real Estate, our “Resident Experts” have had lots of experience in all markets and can help you make those decisions.

As for the tulip bulbs Emily brought back from the Netherlands, in the Fall I will be planting them and thinking about how investors were paying a small fortune, as much as 5,500 guilders for a single bulb! That was enough to buy a small house in Amsterdam at the time. Tulip Mania of 1636-1637 is often said to be the first true economic bubble in history. As for my bulbs, I have assessed their intrinsic value based on having a loving memory of my daughter’s thoughtfulness. Having said that, 5,500 guilders IS a lot of money!

As I write this it is easy for me to imagine that countless technology innovators around the globe are hard at work crafting apps and programs to basically accomplish everything. If you name a product or service, you can be sure someone is out there trying to be successful doing it better, cheaper or faster.

In business it is called disruptive innovation and it really isn’t a new concept. Think stone tools, fire or the wheel to begin with, everything that creates new value that replaces an existing good or service is disruptive, and that’s a good thing usually, in the long run. Not all innovation works out as intended, for example the dirigible had its draw backs. Things that are costly and widely used attract the most attention from innovators, like real estate brokerage.

Internet technology has opened the innovation door wide and has caused whole industries to change dramatically in an ever accelerating fashion. A friend from college thought she had an enduring career in travel and another of my friends once owned a bookstore. Uber now accounts for 40% of all business travel in 108 countries and Airbnb is giving the hotel industry heartburn. But for many reasons, the disruptive innovators have not been able to break the back of the real estate brokerage.

About 90% of all home sales still involve real estate brokers and that percentage has actually increased over the past 20 years. And a significant percentage of the balance, are transactions between close friends and family members. While technology has changed the industry, the traditional commission based model remains in place despite many well funded attempts to change the way residential real estate is bought and sold.

One west coast based real estate technology company that once thought the buying and selling of homes could be transacted almost entirely on line and has operated in markets across the country, never made money and burned through over $600 million in venture capital. They’ve effectively become a discount brokerage, a business model that has never been successful.

Residential real estate is not a commodity. If it were, Amazon would have figured out how to retail it. Actually, Amazon is beginning to offer referral services like Google and Facebook, recognizing the important role of the real estate professional in the buying and selling process; a role that has become increasingly more complicated as more and more information about properties and markets becomes available. To a great extent, the internet has made buyers and sellers more aware of how complicated a real estate transaction can become.

The real estate commission remains the big prize for disruptive innovators. But eliminating the commission expense from the sale of a home does not necessarily mean the actual sale price does not change. Since almost every home sale involves a commission, the commission is in fact baked into the sale price of all homes. Unless a brokerage is buying sales volume by operating at a loss, which always ends unhappily for that brokerage, commissions offered will reflect the effort required to provide service.

Someday a machine will write blogs like this and be read by a generation born into the world of artificial intelligence, until then the debate rages on.

I have been thinking a lot about the White House lately and thought I should write a blog about it, so here it is. George Washington never lived there, the only President (the title he chose for himself over king), who did not, though the responsibility for its creation fell to him completely. Once the Constitution was adopted in 1788 and the first election of a leader was completed, it seems most of the Founding Fathers vacated the scene. As expected, and hoped for, George Washington won the election with all 69 of the electoral votes cast. He had done great things for the new country, and was about to add first time home buyer for the nation to his list of accomplishments. The task of finding the right location in the right part of the country and building a suitable home for its leader fell to him.

In 1789, no country on earth was ruled by someone who was term limited and George Washington was determined that the United States of America was to be the first. And that was not the only egalitarian distinction he was going to bring to his new charge. While he felt strongly that the President should reside in a substantial residence, he rejected city planner L’Enfant’s vision for a grand elaborate palace and settled on a house one third as large, yet grand for its time in America. Bigger homes would not be built until after the Civil War during the Gilded Age.

Capital cities in Europe were recognized for the wealth and commerce they attracted so it was not surprising that New York and Philadelphia, Americas two largest cities, competed for the chance to become the nation’s capital and home to the President, but Washington felt that it was important to locate the seat of government and the “Executive Mansion” in a more central location. He signed legislation in 1790, designating land not more than 10 miles square along the Potomac River at the Maryland/Virginia border to be the Federal City. Washington personally selected the “practical and handsome” design by James Hoban from among nine competing submissions. The cornerstone was laid in October of 1792 and Washington was present to oversee the construction of the house. He would not live to see his vision realized when the house was completed in 1800.

The White House is 185 feet long, 85 feet wide with two basements and four stories above grade for a total of 55,000 square feet of living area. It has had its share of challenges requiring upgrades including being set afire by the British in 1814, a major house fire during the Hoover administration in 1929, and near structural failure when Truman was President. The nation has never failed to respond to the needs of the White House, which only became the White House in 1901 when Theodore Roosevelt began using the nickname on his engraved stationary.

The White House cost about $3 million in today’s dollars. It was a great expense for the new nation, but Washington knew how important it was to show confidence to the world that our democracy would endure. No matter what your politics are, it is hard not to be anxious these days, but we can take some comfort in the permanence and beauty of this old house.